“Fundamentally with office users, I do see some changes,” said Jeff Hoagland, president and chief executive of the Dayton Development Coalition in Ohio. ”Places might decide they don’t need as much space. I think what’s going to happen is there’s going to be some right-sizing.”
Uncertainty about how long the pandemic will last and the pace of recovery from the economic recession make it more difficult to predict how workplaces will change, but those interviewed said business leaders are having those discussions.
“Right now, there is a lot of speculation but nobody really knows what the long-term impact will be,” said Ford Weber, director of economic development for the city of Dayton. “Downtown was already heading in a direction that provides more flexible work spaces that are rich in amenities like the Arcade, Daywork 130, etc. Commercial office properties across the country have been trending that way for several years.”
Even before the pandemic, companies had started reacting against the wide-open office concept
“This pandemic will also accelerate that trend,” Weber said. “So while we may see more folks working from home part of the week, the footprint they will take when they are in the office may be a bit higher on a per square foot basis.”
Those interviewed do not know of any large Dayton region companies that have decided to permanently switch to remote work. And many companies, including factories, warehouses, retailers, restaurants and others, cannot have most staff work at home due to the nature of their jobs.
But nationally some companies have already decided that parts of their operations will remain remote after the pandemic ends.
“It’s certainly a concern on everyone’s mind and I am sure there will be those who decide that working from home works for their business,” said Steve Ireland, vice president of Apex Commercial Group in Washington Twp. “However, what we are hearing is that there will always be a place for office space and there is no replacement for the interaction among employees.”
This month the New York Daily News and Chicago-based Tribune Publishing said many of their employees would continue to work remotely.
In April Columbus-based Nationwide announced a transition to a “hybrid operating model.” Employees will mostly work from the office at the insurance company’s four main corporate campuses, including in Columbus, but the company will close most other locations and have those employees work from home.
“We’ve been investing in our technological capabilities for years, and those investments really paid off when we needed to transition quickly to a 98 percent work-from-home model,” Nationwide CEO Kirt Walker said. “Our associates and our technology team have proven to us that we can serve our members and partners with extraordinary care with a large portion of our team working from home.”
Downtown Dayton Remains Attractive Option
Hoagland and others said they do not believe companies will flee Dayton’s downtown, which has seen a building boom in recent years and has a thriving residential base. Key downtown anchors like CareSource, Premier Health and banks likely will remain downtown, Ireland said.Miller Valentine Group and Weyland Ventures just completed renovation of the Dayton Motor Car Building at 15 McDonough St., with Gosiger Inc. planning to occupy two of the six floors, said Dave Dickerson, president for Midwest business development at Miller Valentine, a Dayton-based commercial development and construction company.
“I’m not worried about downtown,” Dickerson said. “It has great accessibility. There is still a desire to live downtown. Most of the housing projects are still doing well downtown.”
The city center’s momentum continues, despite the pandemic, said Sandy Gudorf, president of the Downtown Dayton Partnership. The organization continues to work with companies seeking to move to there.
“The downtown is a unique business environment that attracts companies and their employees,” she said. “Our major developments are moving forward and developers continue to announce new plans and tenants.”
If companies in larger, more expensive cities permanently expand remote work opportunities, Hoagland said it could draw people tired of long commutes and high-cost housing to the Dayton region.
“This is an opportunity for Ohio and our regions to say, ’Come work from home in Dayton, Ohio,’” he said.
The Dayton-based digital signage company Stratacache owns two downtown Dayton high rises — the former Kettering Tower that houses its headquarters and the former Courthouse Plaza Tower — as part of its more than 3 million square feet of buildings in Montgomery County and around the world, said Chris Riegel, founder and chief executive.
“For our buildings we are seeing a surge of new leases and increased occupancy,” Riegel said. “I think people are looking for better experiences and lower cost markets. Markets like New York and San Francisco are being destroyed. But secondary markets like Dayton can leverage the exceptionally low costs, great infrastructure and higher quality of life to gain market share.”
Real Estate Impact Still Uncertain
The most immediate focus for Dayton region businesses is to handle COVID-19 workplace issues, said Chris Kershner, president and chief executive of the Dayton Area Chamber of Commerce.Dayton businesses are resilient and flexible, he said, but “COVID is 100% testing those limits.”
“COVID isn’t an easy environment to operate a business. The rules are changing every day, operations plans and budgets are being re-written monthly and the future of COVID is uncertain,” Kershner said. “Businesses will assess the future when they know what the future actually looks like.”
The impact on commercial real estate is still mostly unknown, according to Dickerson, Ireland and Greg Blatt, managing director of KW Commercial-Advantage Real Estate in Beavercreek.
“I think to make any permanent decisions on it will be premature,” Dickerson said. “I think companies will remain flexible, probably signing shorter-term leases.”
Blatt has been busier than he has been in a decade, which he attributes to low inventory on the commercial side, especially manufacturing space, and low interest rates driving demand. Online shopping is increasing demand for warehouse, logistics and tele-center space, Blatt said.
Dickerson doesn’t expect a lot of new office space coming online, and said companies will take advantage of existing space because it is less expensive.
“Office configurations will change. I don’t think you’ll see cubicle farms,” Ireland said. “At least for the near term we will see a shift to hard wall offices and higher partition walls and an aversion to the tightly packed, open environments.”
Ireland and Blatt both predict downward pressure on rents.
“We’ve seen these cycles before. Landlords have enjoyed a strong market for several years now and we are now seeing it shift in favor of tenants,” Ireland said. “While vacancies will likely increase and rental rates may adjust down, this is all part of a normal cycle.”
In talking to his colleagues at Apex, Leland said they’ve seen a slowdown in activity, and companies reluctant to commit to expansions and relocations.
In the second quarter of 2020 the average asking rental rate for Dayton office market space rose 5.2 percent year-over-year, to an average of $16.06 per square foot, according to Colliers International’s Knowledge Report. The vacancy rate was 18.9 percent.
The report noted that like the rest of the nation, the Dayton region saw employment plunge sharply during the mid-March to late May pandemic shutdown.
“The Dayton office using sectors, however, experienced a much lower reduction as a percentage of the overall labor force compared to other Ohio markets,” according to the report. “A high percentage of the local labor force is employed in the defense and health-care sectors, which are certainly essential businesses that remained open during the lockdown.”
Workplace Will Evolve
A new survey by ManpowerGroup of 8,000 workers in eight countries, including the U.S., found that 43 percent believe that the pandemic “marks the end of full time work in the office” and most prefer working in the office two or three days a week, according to the report. The survey also found that eight in 10 workers want more remote work so they can better balance work and family life in the future.Companies that prioritize employees’ well-being and offer flexibility will attract and retain the best talent, said Jonas Prising, chairman and chief executive of ManpowerGroup.
“After health concerns for themselves and their family, workers are most worried about returning to an old way of working and losing the flexibility they have gained,” according to a ManpowerGroup news release. “The research points to employers needing to adopt a People First approach and to reimagine a future of work that works for organizations and individuals alike — prioritizing health, well-being and caring responsibilities.”
What Gudorf is hearing from business leaders is they are studying how work-from-home has effected things like company culture and worker productivity.
“Business leaders are evaluating the impact of remote working on their businesses. For some, it is easier than for others,” Gudorf said. “For now, it is about when and how to bring employees back into their offices safely, while analyzing their long-term strategies.”
Companies can most certainly save money by reducing their physical footprint, but there are valid questions to consider with a remote workforce about establishing a corporate culture and mentoring and coaching employees, Dickerson said.
“The term ‘flexibility’ is just going to be a key,” Dickerson said. “I think people feel like they are getting productivity by being flexible with employees.”
“At many firms the productivity numbers have not gone down. They’ve actually increased,” said Jeff Haymond, a Cedarville University professor of economics and dean of the school of business administration. “The fear all along was shirking, employees watching Netflix and everything else.”
“What they’re finding is it’s not costing what they feared and employees seem to kind of like it. And there is a potential cost savings,” Haymond said.
Companies looking at the bottom line might decide that buying employees a computer and office equipment and paying for their internet is cheap compared to the cost of office space, he said.
Adam Segal, chief executive and co-founder of Washington D.C.-based Cove, said companies will take a fresh look at the role of the office.
“For some businesses, this will result in a remote-only approach. For others, this will mean a smaller office with reduced square footage. The office is not gone forever, but it will definitely have to evolve and change to remain relevant,” said Segal, whose firm builds software and work spaces for companies.
Technology enables companies to communicate using a variety of video conferencing platforms, he said, so people do not have to be in an office to communicate.
“Since desks can now be anywhere, the office will have to become relevant in a different way: becoming the place for engagement, team building and culture,” Segal said. “In a post-pandemic world over the coming two years, the office will evolve from what used to house dedicated desks to become a destination for intentional engagement, collaboration and culture done in tandem with remote work.”
Others are doubtful that the practice of going into the office five days a week will become a relic at most companies.
“Remote working can be good for some tasks, but when you have creative, team-based businesses — knowledge businesses — remote working drains productivity and ability to solve complex problems,” Riegel said.
“I think that work from home will be a part of the long-term mix, but ask anyone who has been stuck at home the past five months if they are ready to get back to the office and I would guess you will get a 95%, ’Yes, I want to go back,’ response rate.”
Remote work has been the only good option for some companies during the pandemic, and business leaders are pleased with how well it has worked out, Hoagland said.
“But people are starting to miss the human-to-human interaction and collaboration that occurs in an office setting,” Hoagland said. “You can’t get that same relationship through a Zoom call”
By The Numbers
Dayton office market 2nd Quarter 2020180,000: Square feet under construction
18.9%: Vacancy rate
$16.06: Average asking rental rate per square foot
5.2%: Average asking rental rate increase (year-over-year)
Source: Colliers International Knowledge Report Q2 2020
©2020 the Dayton Daily News (Dayton, Ohio) Distributed by Tribune Content Agency, LLC.
